Transcript No Slide Title

ENTR 452
(Opportunity Recognition)
THE PROCESS OF
“CREATIVE DESTRUCTION”
Schumpeter (1934) described the role of the entrepreneur
as a radical market innovator who brings about creative
destruction through innovation.
He argued that industries within societies are replaced by
other industries over time. The process of replacement of
one industry (destruction) by another more modern
industry (creation) is creative destruction. (e.g.,
typewriters/computers, horse & buggy/cars)
Creative destruction is taking place constantly and moves
society forward – entrepreneurship moves society.
ODDS OF SUCCESS
1 in 1000 chance of becoming a millionaire from starting
a business (some studies show 1 in 200 chance)
3 in 10,000 high school basketball players will make the
NBA or WNBA (odds far worse for all high school kids)
1 in 176 million chance of winning Mega Millions
1 in 1.1 million chance of getting struck by lightning
1 in 250,000 chance of getting struck by lightning in
Montana
FINDING/DEVELOPING AN
OPPORTUNITY IS CRITICAL
Think about unmet market needs.
Think about what you are passionate about.
Be unique!
Can you establish sustainable competitive advantage.
UNIQUE BUSINESSES
http://most-expensive.com/bed
http://www.businessnewsdaily.com/4753-unique-businessideas.html
http://www.dailymail.co.uk/news/article-2271953/UndeadTeds-Phillip-Blackmans-gory-zombie-Teddy-bears-sellValentines-Day-2013.html
http://earth911.com/news/2010/12/09/agritourism-getsinteractive-with-rent-a-cow-programs/
http://www.usatoday.com/story/news/nation/2013/08/25/foodallergies-tattoos/2633663/
OPPORTUNITY
RECOGNITION DEFINITION
Perceiving a possibility for new profit potential
through (a) the founding and formation of a new
venture or (b) the significant improvement of an
existing venture.
(Christensen, Madsen, & Peterson, 1989)
OPPORTUNITY FACTORS
Opportunities emerge when there are changes in:
1. Technology
2. Consumer Economics
3. Social Values
4. Political Action and Regulatory Standards
5. Demographics
6. Natural Disasters
7. Resource Discoveries
WINDOW OF OPPORTUNITY
(TIMMONS)
Market Size
$1 billion
Market
$500M
$250M
$100M
5
10
Window of
Opportunity
Time (years)
20
OPPORTUNITY AS MARKET
DISEQUILIBRIA (KIRZNER)
Price
S
Pe
P1
D
Q1
Qe Q2
Quantity
THE OPPORTUNITY
RECOGNITION PROCESS
(LONG & McMULLAN, 1984)
i) uncontrolled factors
ii) controlled factors
Cultural
Forces
Venture
Alertness
Cultivation
Social
Forces
Study of
Venture Subjects
B. Identifying the
Field of
Opportunity
C. Elaborating the
Opportunity
D. The Decision
to Proceed
Strategic Idea Elaboration
Economic
Forces
Job
Selection
Job
Forces
Moonlight
Venturing
Personality
Factors
Entrepreneurial
Lifestyle
Initial
Vision
the ‘aha’
experience
Elaborated
Vision
Strategic Idea Elaboration
The Decision
to Proceed:
Prestructuring
the Venture
OPPORTUNITY RECOGNITION
SEQUENCES (BHAVE, 1994)
A. Externally Stimulated Opportunity Recognition
Opportunity
Filtration
Opportunity
Refinement
Decision to
Start
Opportunities
Recognized
Opportunity
Chosen
Business Concept
Identified
B. Internally Stimulated Opportunity Recognition
Commitment to Physical
Creation
Meta Opportunity
Stage
Opportunity
Refinement
Need
Recognized
Need
Fulfilled
Business Opportunity
Recognized
NEW VENTURE IDEAS VS.
ENTREPRENEURIAL OPS.
 Ideas do not equate to opportunities
 Other factors must exist
 Controlled and uncontrolled factors
(Long & McMullan, 1984)
 An entrepreneur’s personal characteristics and
environment will influence the opportunity
recognition process.
MY MODEL OF THE BASIC
OPPTY REC. PROCESS
Entrepreneur
- Background
- Experience
- Education
*** Business Idea ***
Environment
-
Industry
Economic Conditions
Social Context
Regulatory Issues
Entrepreneurial
Opportunity
Possible
Firm
Founding
MEAN NUMBERS OF IDEAS
AND OPPORTUNITIES
ITEM
MEAN
Ideas last month
2.4
Ideas last year
6.6
Opportunities last month
1.2
Opportunities last year
3.3
IDEA SOURCES
SOURCE
% OF RESPONDENTS
Prior Experience
73.0%
Business Associates
32.8%
Saw a Similar Business
25.8%
Friends or Relatives
19.1%
Hobby/Personal Interest
17.2%
Market Research
11.3%
It Just Came to Mind
10.9%
Magazine/Newspaper
2.3%
Radio/Television
0.4%
Other
4.7%
OPPTY RECOGNITION
ACTIVITIES
ACTIVITY
% OF
RESPONDENTS
Sought out information/feedback from business
associates
Contacted potential customers/clients
52.0%
Discussed idea with friends/family members
46.5%
Gathered information on competitors
33.6%
None, just knew idea was an opportunity
33.2%
Prepared financial statements
25.0%
Other
50.0%
3.5%
TIME LAPSE BETWEEN
IDEA AND OPPORTUNITY
TIME
% OF
ENTREPRENEURS
None
13.7%
Hours
2.3%
Days
14.5%
Weeks
22.7%
Months
35.9%
Years
10.9%
TIME LAPSE BETWEEN
OPPORTUNITY AND FOUNDING
TIME
% OF
ENTREPRENEURS
Hours
1.6%
Days
11.3%
Weeks
26.2%
Months
50.8%
Years
10.2%
MODIFICATION TO IDEA
BEFORE BECOMING OPPTY
CHANGE
PERCENTAGE OF
ENTREPRENEURS
No Change
19.1%
Slight Change
42.6%
Moderate Change
28.5%
Major Change
9.0%
Complete Change
0.8%
OPPTY RECOGNITION
THROUGH SOCIAL NETWORKS
Social networks are the most important resource of the firm
- they provide access to information and resources
Social networks subsume both individual and environmental factors
- the people one associates with tell us about the individual
Support for the “Strength of Weak Ties” (Granovetter, 1973)
- People you do not know well are more important to
entrepreneurs than people you know well.
An associated concept is the importance of Structural Holes
(Burt, 1992) – if your immediate contacts do not know each other
there are “holes” in the network. This is advantageous (see example).
STRUCTURAL HOLES
EXAMPLE
A’-1
A’-2
A’-3
A-1
A-2
A’-6
A’-4
A-1
A-2
E-1
E-2
A-3
A-3
A’-5
Three holes (look
at immediate contacts)
No holes (not as beneficial
to the entrepreneur)